How Montana's Budget Ended Up $200 Million In The Hole

Montana is facing a state budget crisis. The state is projected to have about $200 million less than it needs to fund everything in the budget that lawmakers and the governor agreed to this year. That much is clear, but there's a lot of disagreement about why the $200 million hole is there, and what to do about it.

Today and tomorrow we're going to take a look why the state budget is so far out of whack.

Every legislative session, lawmakers try to figure out how much money the state will have to spend based on two forecasts – one from the executive branch, and one from the legislative branch.

Kelly Flynn, is a Republican representative from Townsend. He sat on the House committee that approved the legislative forecast. He says lawmakers used the best information they had to lay the foundation of the state budget.

Rep. Kelly Flynn.

Credit Courtesy Montana Legislature

"You have an independent body, and I stress that, the Legislative Fiscal Division, their job whether it’s Democrats in charge or Republican in change, they’re supposed to make the best possible estimate on the revenues we have so that we can budget," Flynn said.

It seems straightforward: Once the estimates on how much money the government will have available are in, lawmakers decide how to divvy it up to meet the state's needs. But it's not that simple.

"It is a politically charged debate, and it’s gamed by both sides," Flynn said.

Flynn says politics can seep into the forecasting process, even before debate begins on how to spend government money.

But then, in June, it became clear that the actual amount of money coming into government was well below what the forecast predicted. Now, updated forecasts project a shortfall of more than $200 million, blowing past additional safeguards passed this year to protect against holes in the state budget.

"To look at it in hindsight, even though the revenues are growing, they are not growing to point where we thought they would be back in February and March when we were looking at those estimates," Flynn said.

Montana is not alone in writing budgets that don't work because of errors in revenue forecasting.

"In defense of revenue forecasters, there is really a lot of art, not just science to it," Barb Rosewicz, research director for the Pew Charitable Trust’s state fiscal health project, said.

They concluded that, across the country, actual state revenues are recently tending to fall below the forecasts elected officials use to write budgets. The researchers said that happens more often during and after recessions, and that state revenues are increasingly difficult to forecast as parts of the national and state economies grow more difficult to predict.

"There's no database that's gonna give us an answer of what's gonna happen, until it actually happens," Rosewicz said.

This means that as Montana’s elected leaders fight over the spending within a state budget, the foundation on which that budget is built is growing less stable. And this year it toppled.

Rosewicz says it’s hard to nail down what caused the error in Montana's revenue forecast, and there are many factors; taxpayer and consumer behavior and underlying cycles within the economy.

As Montana’s lawmakers and governor continue debating a possible special legislative session and the best way to patch the wrecked state budget, even trained forecasters can only give educated guesses about how much money the state will have to spend going forward.

Tomorrow we’ll take a closer look at what role Montana’s economy plays in the state budget shortfall.

Political salvos are flying between Governor Steve Bullock and Republicans amid a waiting game and hints of a special legislative session to potentially solve the budget crisis.

As Montanans wait to learn how, and if, the governor will follow through on his proposed 10 percent cuts to state agencies, Democratic and Republican leaders are digging into their tug of war over state spending.

A special legislative session may be the only way for Montana to fix its budget, wrecked by an over projection of incoming revenue and an expensive fire season, according to conservative leaders in the House and Senate.

Governor Steve Bullock's office warned lawmakers Tuesday that they’re risking a special legislative session and budget cuts if they rely too much on new, more optimistic state revenue projections to fund the state budget.

Montana may have more than $100 million in additional revenue coming into the state than expected just a few months ago.

The revenue forecast released this afternoon by the state's nonpartisan Legislative Fiscal Division shows the most significant uptick in state earnings coming from individual income taxes and corporation income taxes. It says state revenues from oil and natural gas production taxes are expected to decrease over the next 3 years.

Montana could see as much as $106 million in additional revenue come into the state than was previously unexpected. But lawmakers are approaching this news with some caution as they create the state’s budget.